The Great Chicago Christmas Credit Card Fiasco of 1966: Echoes

They didn’t do this intentionally, of course, but that
holiday season the city’s banks put thousands of credit cards
into criminal hands, with disastrous consequences. Although
embarrassing and costly, the Chicago credit card fiasco did have
an upside: It eventually led to consumer protections that are
still with us today.

Bank of America Corp. began the first large-scale bank
credit card program in California in 1958. Its initial losses
convinced other large banks to steer clear of the market, but by
1965 it was apparent that Bank of America’s program had become
profitable, and other banks soon began investing in similar
systems.

In Chicago, the city’s major banks -- Continental Illinois,
First National Bank of Chicago, Harris Trust & Savings Bank, and
Central National Bank of Chicago -- joined with the smaller
Pullman Bank & Trust to form the Midwest Bank Card Association,
an interchange network similar to today’s MasterCard and Visa,
which made each bank’s cards acceptable by all merchants
participating in the system. The lenders nominally cooperated by
clearing one another’s transactions, but competed to sign up
participating merchants and solicit customers.

Unsolicited Mail

At the time, Illinois didn’t allow banks to have subsidiary
branches. And Chicago’s big banks, located downtown, were eager
to target customers living in the affluent suburbs. Bank credit
cards were still an unproven product, and these banks knew it
would be difficult to convince suburbanites to drive into the
city to apply for cards in person. So they planned to mail
unsolicited cards instead -- hoping, simply, that once consumers
had the cards they would use them.

The banks agreed to delay their mailing campaigns until
1967, so they could calmly study the issue, screen lists of
potential recipients and put appropriate security measures in
place. But as with the crowds outside Toys-R-Us on Black Friday,
plans for calm lasted only as long as the doors were closed.
When they opened, all hell broke loose.

And they opened early. As the smallest member of the
association, Pullman Bank & Trust feared the market power its
partner institutions could bring to bear. To get a jump on them,
it launched its unsolicited mailing campaign in November 1966.
Caught unprepared, but unwilling to cede the valuable suburbs,
the remaining banks rushed in, too, eventually flooding the
holiday mail with millions of unsolicited credit cards.

Although the banks would later claim they had carefully
screened their mailing lists, the evidence suggested otherwise.
One woman received cards from two separate banks, which was
unfortunate, since she’d been dead five months. Babies and small
children also received cards in the mail. Explained Federal
Reserve Board member Andrew F. Brimmer at a congressional
hearing: “Babies with sizable savings accounts -- frequently
opened by grandparents -- could not be distinguished from
adults.”

These errors were embarrassing, but the biggest problem was
fraud. By starting their programs in November, the Chicago banks
dropped millions of cards into a postal system already
oversaturated with holiday mail and staffed by sometimes sticky-fingered temporary employees. Further, the banks announced what
they were doing publicly, lighting a beacon for Chicago’s
well-organized underworld.

Fraudulent Shopping

As credit cards mingled with Christmas cards, criminals
scooped up thousands of them at the post office and from mail
boxes. Some even targeted multifamily homes and apartments where
they knew they could collect the most plastic. And unlike cards
today, which require activation using personal information,
these cards were typically live and ready to use, often
requiring nothing but a signature -- a forged signature would do
-- to facilitate fraudulent Christmas shopping.

Some merchants even cooperated with criminals, billing the
banks for merchandise on the stolen cards and splitting the
proceeds with the thieves. Thirty business owners were
eventually indicted, and many others were charged with stealing
cards from the mail.

Estimates of the losses from the debacle range from $6
million to $12 million (or from about $43 million to $85 million
in 2012 dollars). For the banking industry, the incident was
sobering. Still, it didn’t stop banks from mailing unsolicited
credit cards, it only convinced them to do so more carefully. “I
think perhaps we should reimburse Chicago ... for the lessons
they taught us,” one banker told Congress.

The Chicago debacle drew significant attention from
lawmakers, and prompted Congress’s first substantial attempt to
regulate the emerging bank credit card industry. The effort took
four years and led to a variety of reforms, including a ban on
unsolicited credit card mailing and a cap of $50 of consumer
liability for a lost or stolen card.

Consumers are still shielded by this limited liability
provision -- a gift we can be thankful for this holiday season
if we find ourselves victims of a pickpocket or identity thief.

(Sean Vanatta is a graduate student at Princeton
University. The opinions expressed are his own.)